Dr. John T. (“Jack”) Manhire, Jr., former Chief of Legal Analysis for the IRS Office of Professional
Responsibility and National Program Chair, Executive Education for the U.S. Treasury Executive Institute, has accepted a position as Director of Program Development at Texas A&M University School of Law.

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result of reducing tax rates and revenue everywhere. They also decry “secrecy” jurisdictions that allow owners of entities to conceal their identities, suggesting that the only reasons for confidentiality can be to cheat tax authorities somewhere out of their due.

But as anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

Lower rates can attract taxpayers, but allowing more rapid depreciation of capital investment might trump lowering rates for capital-intensive industries, while an honest and efficient revenue agency may matter more than nominal rates for total revenue collections.

Like this:

Attacking Profit Shifting by Prof. Jeffery Kadet – In recent years the financial press has turned increasing attention to MNCs that shift income to low taxed jurisdictions overseas in order to avoid US taxation. What’s generally missing from these discussions is any serious focus on possible IRS attacks on these companies, most of which are CFCs. There’s little apparent concern by anyone that the IRS will try to disallow the profit-shifting structures that have moved so much taxable income out of the US and other countries and into low-taxed foreign jurisdictions.

This is changing. Early this year Caterpillar Inc. in an SEC filing disclosed that the IRS had issued a Revenue Agent’s Report to currently tax certain income earned by one of its Swiss entities. Presumably this is income earned as a result of a certain restructuring conducted in the late 1990s and referred to as the Swiss Tax Strategy when examined in 2014 in hearings held by the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations (PSI).

The IRS basis for its RAR, as disclosed by Caterpillar, is application of the ‘substance-over-form’ or ‘assignment-of-income’ judicial doctrines. This, however, is not the only approach that the IRS might have chosen to impose taxation on the shifted profits.

Various Congressional hearing documents, the work of investigative journalists, and other sources (all publicly available) provide evidence that the businesses within some profit-shifting structures continue to be managed and substantially conducted from the U.S. and not from any business locations outside the U.S. Where this is the case, the IRS may have a strong case for imposing direct taxation on the effectively connected income (ECI) of these low-taxed foreign subsidiaries.

Just the threat of imposing direct taxation may cause many MNCs to consider scaling back their profit shifting and for them and their outside auditors to start worrying about exposure on prior years. If the IRS were to sustain such direct taxation, it would mean:

· A loss of deductions and credits for any tax year if the foreign corporation has not filed Form 1120-F for that year, and

· An open statute of limitations on IRS assessment of tax for any tax year if the foreign corporation has never filed a US tax return on Form 1120-F for that year.

The combined effect of the above is a 54.5% or higher effective tax rate (lower if tax treaty coverage reduces the 30% branch profits tax rate).

Considering these terribly high effective tax rate percentages, where the IRS chooses to examine for possible ECI and develops a credible case, they can use the high effective tax rate as strong leverage to secure agreement for reversal of profit shifting structures. Such agreements would presumably see MNCs agreeing to current taxation within U.S. group members of the shifted profits that had originally been booked in low-taxed foreign subsidiaries.

To demonstrate how significant ECI likely exists within many MNCs that have conducted profit-shifting planning, this article includes a number of realistic examples inspired by the above-mentioned publicly available information on MNC profit-shifting structures.

Recognizing that it can sometimes be a challenge to apply the very old existing regulations to current business models, the article strongly encourages Treasury to prioritize the issuance of modernized income sourcing and ECI regulations that reflect the business models and structures now commonly used and that are often found in profit-shifting structures.

“legal education today has to be recalibrated so that it is innovative, cross-disciplinary, simultaneously accessible across global borders, and able to expand without millions of dollars for brick and mortar…”

“law schools are experiencing 40% less enrollment today than in years past and new standards are needed to reverse that decline. These new standards address the three missing elements in legal education today: …”

… In taking the action against Citigroup, the FDIC determined that the bank failed to implement an effective BSA/AML Compliance Program for Banamex over an extended period of time. The institution failed to retain a qualified and knowledgeable BSA officer and sufficient staff, maintain adequate internal controls reasonably designed to detect and report illicit financial transactions and other suspicious activities, provide sufficient BSA training, and conduct effective independent testing.

Critics argue that such competition leads inevitably to a “race to the bottom,” with the result ofreducing tax rates and revenue everywhere. But Dr. Andrew Morriss, Texas A&M Law explains, that anyone who has ever filled out a tax return knows, tax rates are just one facet of tax competition. Jurisdictions can compete over a wide range of tax system attributes – all the way from the complexity of the system to special provisions designed to advantage particular forms of investment to general depreciation rules.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) yesterday issued a final rule, pursuant to Section 311 of the USA PATRIOT Act, which imposes “special measure five” against FBME Bank Ltd. (FBME), formerly known as the Federal Bank of the Middle East. Special measure five prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME. FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., owned by Ayoub-Farid M. Saab and Fadi M. Saab.

In 2015, Texas A&M University School of Law hired 11 new faculty members (12 if counting Texas A&M University’s new President, Dr. Michael Young, who is a member of the law faculty). Below is Texas A&M Law’s announcement for faculty recruitment for the 2016-17 academic year.

TEXAS A&M UNIVERSITY SCHOOL OF LAW seeks to expand its academic program and its strong commitment to scholarship by hiring multiple exceptional faculty candidates:

1) Candidates who are interested in building synergies with Texas A&M University’s Mays Business School, with an emphasis on scholars engaged in international business law who focus on cross-border transactions, trade, and economic law (finance, investments, dispute resolution, etc.);

2) Candidates who are interested in building synergies with the broad mission of Texas A&M University’s College of Agricultural and Life Sciences, which include but are not limited to scholars engaged in agricultural law (including regulatory issues surrounding agriculture), rural law, community development law, food law, ecosystem sciences, and forensic evidence; and

3) Visionary leaders in experiential education interested in guiding our existing Intellectual Property and Technology Law Clinic (with concentrations in both trademarks and patents), Entrepreneurship Law Clinic, Family Law and Benefits Clinic, Employment Mediation Clinic, Wills & Estates Clinic, Innocence Clinic, Externship Program, Equal Justice/Pro Bono Program, and Advocacy Program, with a particular emphasis on candidates who may have an interest in participating in our Intellectual Property and Technology Law Clinic or developing an Immigration Law Clinic.

In 2011, HMRC forecast that it would receive “billions” from the Swiss Disclosure Facility. In 2012, HMRC stated that this number would be 5 billion sterling, and another 3 billion sterling from the LDF. This implies that a couple hundred thousand United Kingdom tax residents are non tax compliant by not disclosing income and income-producing assets overseas, in offshore countries. As of that report of data up to 2012, 50,000 taxpayers had come forward through all offshore disclosure facilities, generating one billion in tax, interest, and tax penalties, thus on average 20,000 sterling per disclosure.

The offshore noncompliance problem in the context of all non-tax compliance, and all taxpayers, requires first asking how many individual taxpayers file in the UK? see International Financial Law Prof Blog.

The Tax Inspectors Without Borders (TIWB) initiative enables the transfer of tax auditknowledge and skills to tax administrations in developing countries through a real time, “learning by doing” approach. Experts – currently serving or recently retired tax officials – are deployed to work directly with local tax officials on current audits and audit-related issues concerning international tax matters, and to share general audit practices.

The FFI GIIN List Update (Lists from June 1, 2014 through June 1, 2015)

On 1 June 2015 the IRS published its thirteenth FATCA GIIN list of “approved FFIs” (a list of thefinancial firms that have registered on the IRS FATCA portal).

Total approved FFIs reached 165,461, and increase of only 2,851 during the month of May. This FATCA registration trend since January has been described as lethargic, with April’s increase just 2,600 additional firms joining, 3,734 additional during March, and 2,479 in February. But when compared to what was forecast by the IRS, by industry, and by the UK, it’s a troubling low figure.

In its FATCA FAQs, the IRS suggested a 500,000 potential FFI registration figure. Many industry stakeholders suggested that 800,000 – 900,000 firms fall under the expansive definition of financial institution.

Given the broad definition of a financial institution that must register for a GIIN, the UK HMRC estimated that, even with its IGA and its accompanying local regulations, 75,000 UK entities probably are impacted. Yet, only the UK GIIN population is only 23,256.

If the UK HMRC is correct that 75,000 entities are impacted in the UK, then extrapolated among other large and sophisticated financial service economies like Japan, China, India, and Germany, the IRS estimate of 500,000 may be low.

90 countries and dependencies have entered into a FATCA IGA with the U.S. based on Model 1A (reciprocal), or are awaiting local ratification, accounting for 100,190 of the registrations. A further eight countries signed a Model 1B (non-reciprocal), accounting for a further 39,564 GIINs. A final 14 countries signed a Model 2 version IGA, adding 18,458 FFI registrations covered by an IGA. Thus in total, 158,212, representing 96% of FFI registrations, are from the 112 IGA states and their dependencies.

The 131 countries and dependencies without an IGA have only registered 6,295 FFIs to date, a surprising low number given that the initial implementation of the 30% withholding for non-compliance with FATCA began 1 July 2014.

The UK and its ten dependencies and overseas territories comprised 74,694 of the GIINs, representing 45% of the total, or without the UK included, 49,898 for 30.6%. The 34 OECD members have produced 79,057 GIIN registrations.

Cayman remains the FFI registration global leader, with 30,868, throughout the entire FATCA registration process. Ironic that the EU Commission just black listed it last week.

The major financial industries of the four BRIC countries have only led to 8,254 FFI registrations, which is seen as a worrying point for FATCA acceptance among non-OECD states. BRIC registrations are now just dripping in, up from 8,186 in May, 8,060 in April and 7,962 in March.